Officials with Omega Community Labor Alliance were back on the witness stand, including the former CEO William Flores who skipped the first hearing, in an effort to lift the California Department of Insurance’s cease and desist order against its claimed alternative to workers’ comp insurance – Compass Pilot. Testimony delivered more details about its operations and spending habits, including the fact that it had to dip into its workers’ comp reserves just to keep the operations running.
That reserves even exist is a new development as officials previously testified that the precursor American Labor Alliance CompOneUSA program paid claims out of cashflow and did not maintain reserves. How much is currently in the fund was not revealed. Omega and its Compass Pilot program, however, are operating without any reinsurance coverage, according to testimony delivered during last month’s hearing.
Omega, according to the California Department of Insurance, is the alter ego to American Labor Alliance, which also sold a purported alternative to workers’ comp insurance under the guise of being Employee Retirement Income Security Act (ERISA) benefits. Omega took over the policies and their liabilities when ALA and its CompOneUSA product lost its challenge to the Department’s cease and desist order and incurred millions in fines. ALA founder Marcus Asay and finance guy Antonio Gastelum are also facing federal mail fraud and conspiracy charges for their actions.
Gastelum was back on the stand to provide details about Omega’s operations and finances. He says the organization is now putting 30% of gross billings into a fund to pay workers’ comp claims. Another 21% goes into a program reserve fund that he says is there to backstop the workers’ comp claims account if needed, but so far has been tapped only to keep the organization’s operations running. How much was siphoned off to cover its operational deficit was not disclosed, nor was there any evidence presented that the reserves were ever replenished.
The claims operations are being run through Omnis Benefit Administrators, which serves as the third-party administrator for Omega as it did before for ALA. It is also the TPA for other alter egos, such as Oasis Labor Association, that are or are preparing to operate in other jurisdictions.
Details that emerged at the hearing indicate that over the last two years, since it began operations, Omega has paid out roughly $3.1 million in workers’ comp benefits. Another $2 million was initially set aside as reserves to backstop the workers’ comp claims fund, while another $5 million went into operations.
Chief administrative law judge Kristin Rosi is overseeing the proceedings with Omega as she did previously with the enforcement actions against ALA. She is well versed in the organization’s claimed exemptions from state oversight.
“If I represent that Omnis has paid somewhere in the range of $3 million in claims over the last two years, then we can roughly estimate that about $7 million then went to operating costs – some of which went to claim reserves assuming its 21% and another $5 million went to operating Omega,” ALJ Rosi asked Gastelum.
“That’s exactly right. Omnis since November 2017 through the middle of September, I’m sorry Compass Pilot’s claims totaled $3.11 million during that period,” said Gastelum. “So yes, proportionately about $2 million would have gone to program reserves and about $5 million to operating costs.”
“And if I understand what you testified to right before that, you’ve had to dip into the reserves as program expenses have exceeded $5 million,” Rosi asked.
“Oh yes,” Gastelum responded.
The 30% take off the top to pay claims also includes 3% to cover the surcharges that employers pay as part of their workers’ comp premiums to fund the Department of Industrial Relations operations and the California Department of Insurance’s anti-fraud efforts. Unlike insurance carriers, however, Omega and ALA before it has never remitted the money to DIR, which does not recognize it as a legitimate operation.
Gastelum says the organization used to put these surcharge funds into a separate trust account, which got up to $365,000. Now, however, the monies are being lumped into its account for paying claims. Additionally, ALA was collecting the surcharges for each account, such as the Cal/OSHA account or the uninsured employers’ account, but Gastelum says it is now billing employers an estimated charge for all of the surcharges collectively instead of on a per-account basis.
Omega’s central premise is that it is a union offering ERISA benefits as an entity claiming exception to the multi-employer welfare arrangement (MEWA) regulations. As such, it claims to be exempt from state regulation.
Much of the testimony, however, focused on its operations as a union and how it allegedly becomes the bargaining representative for the covered workers. Previously, American Labor Alliance also claimed union status, but Department of Labor officials issued a letter stating that it was no such entity.
Omega claims to organize the workers and then approaches the employers about a collective bargaining agreement with the workers’ comp benefits. Testimony under oath, however, indicated that it is the employers’ interest in the workers’ comp benefits that often opens the door to the alleged organizing of the workers.
In past hearings, Omega and ALA officials maintained that they became the official bargaining agent through a card check process with the workers – many of whom are working for temporary agencies or farm labor contractors. It claims that a majority of the workers signed a card declaring ALA or Omega to be their bargaining representative, but sloppy record-keeping and partially completed membership cards make verification difficult if not impossible. None of its contracts have ever been certified by the National Labor Relations Board or the California Agricultural Labor Relations Board.
Now, however, the narrative is changing. Gastelum offered on the witness stand that Omega has to do no more than present itself to an employer as the bargaining agent for the workers and that no card checks or elections are necessary. “For the purposes of acting as a union and representing employees for collective bargaining, there is no requirement from the Department of Labor or anybody else at the federal level that a union has to comply with in order to serve as a union to engage in collective bargaining,” Gastelum maintains. “Our understanding is like I said, is it is sufficient for us to simply walk into an employer office and declare that we represent the employees.”
It is a very convenient argument if someone is in the business of selling a purported alternative to workers’ comp coverage to businesses employing a transient population of workers. Gastelum maintains that they are going through the card check process on a voluntary basis merely “to have documentation that could be provided in a hearing.” The documentation, however, includes cards that had only a worker’s first name or were missing the employee’s address and many that failed to name the alleged employer.
At this point, no future hearings are planned, but the process is far from over. ALJ Rosi will have 60 days after the record closes to issue a proposed decision, and then Insurance Commissioner Ricardo Lara will have another 60 days to accept, reject or modify the proposed decision. Meanwhile, nearly 200 employers representing several thousand workers will continue to operate with coverage the state says is bogus and as workers’ comp claims continue to accumulate.
The real question is why the Department of Industrial Relations, part of the Labor Department, has not gone to employers and indicated the coverage is unacceptable under California law.